With record-low interest rates, a marching stock market and sluggish economic growth, it certainly is a strange (and almost unprecedented) time to be investing. That’s where a balanced approach comes in – balance is the process of managing risk in an effective way in attempt to capture upside and limit downside.
Here’s how I would build a ‘balanced’ $100,000 portfolio in today’s market, starting with the most conservative investments and ending with the most aggressive.
Sydney Airport Holdings Pty Ltd (ASX: SYD) – $25,000
Sydney airport is a great example of a conservative investment as it acts as what’s known as a ‘bond proxy’. Sydney’s Kingsford-Smith airport is NSW’s only commercial international airport – flyers have only one option to get in and out of the state if they want to go overseas. This gives Sydney Airport a huge and durable competitive advantage and one which will remain solid even in tough times – making the company a solid income stock for now and the future.
Wesfarmers Ltd (ASX: WES) – $25,000
Wesfarmers used to be Australia’s largest non-government employer before the spin-off of Coles Group Ltd (ASX: COL) in November last year. Wesfarmers still retains a 15% stake in Coles as well fully owning a huge collection of other businesses like Officeworks, Target, Bunnings and Kleenheat Gas and many more. I like Wesfarmers as you are getting a diversified, all-weather retail juggernaut with earnings bases that stretch across the entire economy, which also gives out a nice dividend as well.
Macquarie Group Ltd (ASX: MQG) – $25,000
Many would say you couldn’t have a proper ASX portfolio without at least some exposure to financials, and I have gone with Macquarie Bank here. Macquarie does offer retail banking services (mortgages, loans and term deposits) but the majority of its earnings come from infrastructure investments, investment banking and capital and asset management. This gives Macquarie the enviable quality of being able to generate knockout capital returns whilst also providing a heft dividend. Macquarie shares have returned more than 20% per annum to its investors over the past 10 years and I feel it is a great place to have some funds invested.
Xero Limited (ASX: XRO) – $25,000
Here we have a more ‘go for broke’ pick with Xero. Xero is a software-as-a-service (SaaS) provider and has been generating phenomenal growth numbers with its cloud-based accounting software. Subscriber growth for the last reported year has been north of 30% and by all accounts, this shows no signs of slowing. I like Xero primarily due to its a subscription model, which allows for exponential earnings growth potential (just think of Netflix). Xero shares are very pricey at the moment, so maybe a staggered entry into this stock would be appropriate, but Xero is definitely a quality growth company and one I would be comfortable having some cash in.
I think with this portfolio, we are getting a nice balance between solid defensive stocks and some growth picks that might turn into highly profitable investments over time. In my opinion, having this kind of balance is important at this point of the investing cycle, as its hard to predict what may lie around the corner.
Where to invest $1,000 right now
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited, Sydney Airport Holdings Limited, and Wesfarmers Limited. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.